Correlation Between GMO Internet and RWE Aktiengesellscha

Can any of the company-specific risk be diversified away by investing in both GMO Internet and RWE Aktiengesellscha at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GMO Internet and RWE Aktiengesellscha into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GMO Internet and RWE Aktiengesellschaft, you can compare the effects of market volatilities on GMO Internet and RWE Aktiengesellscha and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GMO Internet with a short position of RWE Aktiengesellscha. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMO Internet and RWE Aktiengesellscha.

Diversification Opportunities for GMO Internet and RWE Aktiengesellscha

-0.24

Correlation Coefficient

GMO Internet  RWE Aktiengesellscha

Very good diversification

The 3 months correlation between GMO and RWE is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and RWE Aktiengesellschaft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE Aktiengesellschaft and GMO Internet is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on GMO Internet are associated (or correlated) with RWE Aktiengesellscha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE Aktiengesellschaft has no effect on the direction of GMO Internet i.e., GMO Internet and RWE Aktiengesellscha go up and down completely randomly.

Pair Corralation between GMO Internet and RWE Aktiengesellscha

Assuming the 90 days horizon GMO Internet is expected to generate 1.47 times less return on investment than RWE Aktiengesellscha. But when comparing it to its historical volatility, GMO Internet is 1.85 times less risky than RWE Aktiengesellscha. It trades about 0.04 of its potential returns per unit of risk. RWE Aktiengesellschaft is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,820  in RWE Aktiengesellschaft on October 25, 2024 and sell it today you would earn a total of  20.00  from holding RWE Aktiengesellschaft or generate 0.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

GMO Internet  vs.  RWE Aktiengesellschaft

GMO Internet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

RWE Aktiengesellschaft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RWE Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with GMO Internet and RWE Aktiengesellscha

The main advantage of trading using opposite GMO Internet and RWE Aktiengesellscha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet position performs unexpectedly, RWE Aktiengesellscha can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in RWE Aktiengesellscha will offset losses from the drop in RWE Aktiengesellscha's long position.

The idea behind GMO Internet and RWE Aktiengesellschaft pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.